Rip-off workplace pension charges to become a thing of the past

As part of a two-sided attack on pension charges, the UK Government has finally proposed to limit default fund charges as well as ban consultancy fees for workplace pensions. The new initiative was introduced in order to increase confidence in the pension savings system as well as provide comfort that workers will get a good value for their money and charges are an important part of that.

Why now?  The Pensions Bill, which has been published last week, will give new powers to the Government to take tougher positioning on pensions in work places.  In addition, this important step to ban consultancy charges has emerged as a result of a six-month review by the government which found consultancy charges, paid to pension advisers for setting up and overseeing pensions, can take out large portions of pension savings and negatively impact those workers who have frequently change jobs.

How does this apply to you?  The Government will promptly ban consultancy charges on the ‘auto-enrolment’ pensions where a pension member’s money is automatically invested if they do not choose another investment option.  The auto-enrolment rule will put some 11m employees into pension schemes for the first time in the upcoming years.

At present, employees have no control over consultancy fees charged.  The employers are currently allowed to pass on costs charged by consultants, who advise them on choosing and managing a pension scheme, to their employees.  The charges can run into thousands of pounds and scheme members effectively end up paying for advice given to their employer.  Under the new proposed rules, employers will continue to be able to use services of consultants – however they will no longer be able to pass on these costs to the workplace pension schemes.

In April this year a research consumer group Which? found that companies are letting consultant fees to take up as high as 50% of workers’ savings in their first year of paying into the pension. The consultants’ fees could be as high as £450 per staff member in the first year and then up to 7.5% of their pension pot for five years after.

In his statement, Pensions Minister Steve Webb said: ‘With millions of people taking up pension saving for the first time under automatic enrolment, we have to give people confidence that they will get good value for money.  He added:  ‘That is why we are banning consultancy charges, where scheme members end up paying for advice given to their employer. In addition, the OFT (Office of Fair Trading) is investigating the whole workplace pensions market and we will act promptly and vigorously late this year in the light of their findings.’

The proposed revisions will apply to defined contribution (DC) pension only, which most employers operate, but not defined benefit (DB) schemes.   The Pensions Minister has also revealed that the Government is considering proposing a charge limit on all workplace defined contribution pensions to ensure the savings of the members are not unfairly impacted by provider administrative fees.  The Government is expected to publish a consultation brief later in the year with advice on how to tackle excessive charges in other workplace pensions.

Do you have any questions or concerns about your current pension scheme?  Feel free to get in touch with one of our experienced advisors for professional and impartial advice.

Economists warn housing prices in Spain need to fall further

Goldman Sachs has warned that house prices in the embattled European Union economy still need to fall another 10%, spelling out further trouble for the country’s already deeply troubled banking sector.

House prices have already plunged 30% from their previous high levels but the investment bank thinks they have not yet reached the bottom valuations and are still over-priced.

Further correction is deemed to be painful.  Another 10% fall in Spanish house prices would threaten to put the country under an even greater pressure.  Five hundred thousand homeowners are already in negative equity and the government has had to pass laws to avert banks from repossessing their homes.

However, Goldman’s economists Andrew Benito and Sebastian Graves think more homeowners could still be at risk. “Our preferred model values housing based on the relationship between rental yields and real borrowing costs. The current level is consistent with house prices falling by a further 10% to reach an implied equilibrium,” they said.

The economists added further that Spain’s banks are holding back the recovery by “evergreening” loans to unviable businesses:  “Too much credit is extended to unhealthy sectors with poor growth prospects, such as construction, and too little net new credit creation towards more growth-friendly entrepreneurial and export-oriented sectors.”  They emphasized that “a willingness to call in existing loans to unviable businesses and extend new credit creation to businesses with better growth prospects is important.”

While the bank lending is falling, Goldman said, it needs to be withdrawn from bad borrowers and lent to promising businesses instead in order to drive future growth.  Government and ECB policies have so far been helping to avoid a “disorderly deleveraging by banks” that would have been otherwise even more painful to the economy.

However, these same policies are now preventing fundamental economic rebalancing.  The economists’ opinion is that “while progress is underway, the Spanish economy still needs a significant economic restructuring… Banks have a central role to play in this process.”

Goldman Sachs’ proposals are similar to those policies already in place in the UK, where banks are being made to disclose their “evergreen” lending as well as set aside sufficient capital to ensure that promising financially sound new businesses continue to have access to credit.

Have you retired in Spain?  Are you a house owner worried about your savings?  If you need assistance with your retirement investments abroad, do not hesitate to call one of our experienced pension advisors!

Expats hit by continuous sterling erosion

According to Equiniti, one of UK’s largest pension administrators, British pensioners living abroad are broadly much worse off than they were ten years ago.  A decade of a weakening pound has left many expat pensioners with up to 50% less purchasing power from their retirement income.  These statistics reveal the full extent of the decline of the pound and how, on a global level, it has eroded the wealth of the Britons.

Equiniti, which has compiled the figures for the top ten most popular expat destinations, oversees work pension payments to more than 50,000 expats.   Many of these payments are for former public sector workers who receive an average pension of around £5,600 a year.

The significant proportion of these – 12.5% of the 50,000 pensioners – has retired to the Eurozone. The research shows that pensioners in the Eurozone have lost 22% of their purchasing power due to changes in currency markets.  Someone who retired in 2003 with a £5,000 pension would receive just under €7,300 ten years ago, while the same sum would now only get €5,692.

The biggest losers are people who moved to Australia who have seen a £5,000 pension plunge from AUS $13,625 to AUS $7,253, a drop of 46.7%. These expats are additionally affected because their British pension is frozen – a double impact despite often a long track record of building up the payments.

What have been the main reasons for such wealth erosion?  The policies of the Bank of England in recent years, in particular, have put pressure on sterling.  Quantitative easing and the policies of low interest rates have weighed strongly on the currency.  According to the economic theory, when a pound is weaker, it helps to boost the economy and make British exports more competitive.

Keith Boughton, director of Equiniti Paymaster, said: “Ten years ago the value of sterling was significantly higher than it is today, and those emigrating abroad for their retirement enjoyed considerable value from their pension.  He adds:  “A plummeting pound has left many expat pensioners unable to make ends meet and struggling to find other ways to protect the value of their pensions.”

It is not all bad news however.  The study by Equiniti revealed that there are still pockets of opportunity – expat pensioners in South Africa and Jamaica have both seen an increase in the buying power of their pension.

Do you want to maximize the value of your pension?  Please call one of our advisors for impartial professional advice.

Dark storms out of sunny Cyprus

No doubt you have been following the Cyprus drama.  So what is the latest from the sunny lands plagued by the recent economic misery?  To give the latest round up on this fast evolving story:

–       The Cypriot finance minister Michalis Sarris stated that banks will remain closed until Thursday;

–       Strict capital controls will be placed such as on the amount of cash people will be allowed to take out when the banks reopen;

–       Numerous sources report that the Cyprus government is planning to put a weekly limit on cash withdrawals;

–       Further controls to prevent money leaving the country have been already implemented and will include a ban on cashing cheques and export limits on euros;

–       Deposits of fixed-term nature will have to be kept until they mature;

–       Cypriot depositors with less than 100,000 euros in their accounts “will not be hit”;

–       Lastly, until the restructuring of the banks is complete, major depositors will not be able to access accounts exceeding the 100,000 euro limit .  A government spokesman said “the losses on uninsured depositors would be under or around 30%”.

What about the unfathomable that is seemingly on everybody’s mind?  Could Cyprus be forced out of the Eurozone?  Politicians do not even wish to contemplate it, it would certainly be disastrous politically and economically but watch this space.

So what does this all mean for the UK?

The government department responsible for Work and Pensions has advised British expats to open UK accounts stating that pensions will not be transferred into Cypriot bank accounts for the time being.

Chancellor George Osborne has said that the Treasury was working on a “British solution”.   Just the Cyprus Popular Bank alone, which forms part of Laiki Bank, has 13,000 British customers who could lose a part of their savings above the 100,000 euros (£85,000) cut-off limit.

Ultimately, the final size of the loss which will have to be digested by the investors will depend on how the government decides to protect pension savings so more news will be forthcoming.

‪Worried about your savings in the midst of this economic misery?  Call one of our financial advisors to explore your possible options.

QROPS introduced out of Gibraltar for smaller pension portfolios

Castle Trust Group has launched a QROPS in response to strong demand from individuals with pensions valued at less than GBP75,000.  The Equus Silver Retirement Annuity Trust Scheme, managed and registered out of Gibraltar, has now been added by the HMRC to its official list of recognized QROPS.

What are the QROPS in simple terms?  These are the schemes that have been designed to simplify the tax affairs of UK residents wishing to reside elsewhere.  To assist with the process, the UK tax law provides tax-free treatment of the transfer of pension schemes to qualifying overseas vehicles.

Castle Trust’s initial Equus Retirement Annuity Trust Scheme, launched in 2009, has been one of Gibraltar’s oldest HMRC listed QROPS.  Equus Silver scheme is the firm’s second issue offering an equal low cost to set-up and annual management fee of GBP299 to attract those with smaller pension assets.

Steven Knight, Castle Trust Group Chairman, explains the appeal: “This new QROPS aims to make the management of pensions as simple and inexpensive as possible without compromising on investment choice,” providing more than 1,000 funds in various currencies.

He adds: “It will particularly benefit people who have lower value portfolios that otherwise would adversely suffer from high minimum professional charges on the management of their pension. At this level, Equus Silver is directly comparable with the cost of providing a UK Self-Invested Personal Pension (SIPP)”.   A number of investment bonds, such as issued by Generali, Skandia, Royal London 360, and Friends Provident International, can be particularly suitable for retirement portfolios of this level.

Looking at the Gibraltar jurisdiction as a whole, there has been a strong demand across the board for QROPS managed out of Gibraltar.  There is the security of a 2.5% tax rate that is comparatively low as well as a sensible approach to determining distribution levels.  In addition, the Gibraltar pensions sector is making an effort to retain and enhance its international reputation including the introduction of new restrictions to prevent transfers to jurisdictions that do not maintain sufficient anti-avoidance standards required by HMRC.

Interested to know more about the benefits of the QROP scheme?  Get in touch with us to assess your eligibility and learn about various pension portfolio options that might be available to you.


Spain tells expats to declare overseas assets or face harsh fines

Under new rules designed to clamp down on tax evasion, British expats as well as other foreign nationals who live in Spain must now declare all assets they hold outside the country.  Why the new rules now?  A spokesman for the Spanish tax authority stated that the globalisation of financial activity and increasing problems with fraud made it necessary “to establish a specific obligation of information on assets located abroad”.

Residents have until the end of April 2013 to declare all relevant assets held overseas that are valued at more than €50,000 (£44,000).   In future, the deadline will be the end of March, but you will only need to report the assets again if their value increases by more than €20,000 (£17,000).  If the assets are not declared, expats could face significant fines for not complying.

What exactly do you need to declare?  Assets include life insurance policies, annuity income, shares, property and bank accounts.  The new rule extends to people who are not only direct owners of an asset but who are also authorised signatories or beneficiaries.  The law also requests for the average balances of bank accounts (in the last quarter of the year) as well as the acquisition value of properties to be stated.

How do you know if you qualify for the Spanish residency rule?  British expats would be considered as residents if they stay more than 183 days in the country per year.  The Foreign Office estimates that 800,000 British nationals live all or part of the year in Spain, with tax residents varying from 250,000 to 400,000. The residency will also apply if the spouse and dependent minors live there.

Those that are considered residents must declare the value of their assets as of December 31st 2012.  This will give Spanish authorities the ability to cross-check that information with what you have included on your tax return.  If you are already compliant, there will be some new forms to fill out.  But if you have been residing in the country without stating your income overseas, you could be in trouble.

What is the worst case scenario?  The starting penalty for failing to declare is €10,000, you also have to account for tax on undeclared income, interest on late payments as well as penalties which could go up as much as 150% of the total tax due.  Let’s give an example, a resident of Spain with holdings of €300,000 (£260,000) in an overseas account, if left undeclared, would incur the minimum penalty of €10,000 (£8,640).  This amount will then be taxed at the top interest rate of 52%.  They would also be fined 150% of the tax owed as well as additional 4% annual interest going back four years, meaning in total they would owe the Spanish tax authorities €424,960 (£368,000).  Tax which has not been paid as a result of undeclared assets held overseas, if valued more than €120,000 (£104,000), could also be considered a tax fraud criminal offence.

What is the expected outcome?  As the result of the new rules, many expats seem to be concerned to the point of considering leaving Spain altogether.  This is not a new trend and just adds salt to the existing wound.  Thousands of British expats and second-home owners have already been leaving Spain in recent years as its economy has been suffering profound downturn.  According to the Madrid-based National Statistics Institute, Spain slipped back into recession in 2011 and the economy shrank at the fastest pace in more than three years in the final quarter of last year.

Just as a number of Eurozone governments have increased the taxation burden on holiday-home owners, sterling depreciation has been acting as a double hit.  The falling sterling has impacted British expatriates dependent on their pound incomes, such as a pension annuity, have seen their incomes noticeably reduced.  With many research institutions expecting a further  depreciation in sterling, the cost of Eurozone property ownership is likely to go further up for the Brits.

The combination of average property values decreasing by 30.7% from the 2007 peak (EuroStat), the cost of maintaining a property overseas continuing to grow while the taxation keeps on increasing in many of the countries where expats live, is certainly a cause for concern.

Are you ready for pension storms ahead?  Give one of our advisors a call – we will evaluate your pension preparation and make sure all of your bases are covered.

Eurozone inflation falls to 2% in January

Inflation across the Eurozone has fallen from 2.2% to 2% in January, according to official figures. The European Commission further estimates that inflation in the Eurozone will fall to 1.8% this year, in line with its target of “close to, but below 2%”.   In comparison, the inflation rate for the European Union’s 27 member states, including those countries that do not use the euro, was 2.1%, down from 2.3% in December. 

What has been the catalyst for the inflation reduction?  The decline comes as austerity measures and weakened economies leave potential buyers with little extra cash to spend, in return limiting retailers’ ability to hike up prices.

The lowest inflation rate was registered in Greece, Portugal and Latvia, at 0%, 0.4% and 0.6% respectively in January. On the other upper hand, the biggest inflation rate of 5.1% was recorded in Romania, with Estonia and the Netherlands at 3.7% and 3.2%.

Which sectors of the economy were the biggest movers contributing to the inflation figure?  Both the EU and the Eurozone as a whole recorded a reduction in consumer prices in January, of 1% and 0.8%, respectively. A total of 17 EU states registered deflation and two more had consumer prices at flat levels in January.

The most significant upward impact on the 17 country bloc annual inflation results in January came from electricity (+0.16%), vegetables (+0.09%) and tobacco (+0.07%).  These were counterbalanced by telecommunications (-0.20%), medical and paramedical services (-0.08%) and garments (-0.06%) which according to the Eurostat showed the biggest downward impacts.

What to expect next?  Some analysts think the drop could leave the European Central Bank (ECB) room to cut interest rates at its next meeting.  Rates are currently at 0.75%. Mario Draghi, the ECB President, has stated that the lower inflation figure allowed the bank to remain accommodating. If Eurozone growth continues to decline, the ECB might step in further to stimulate the economy.

So why should you pay attention to the inflation rate?  Inflation is eroding the value of pensions over time.  Anyone who buys a fixed annuity providing a regular income for life could see the value of their pension erode significantly over time.  The longer the pensioners would live, the poorer they would become, as the real value of their fixed pensions gets reduced by rising inflation.

What to do?  When picking an annuity it is possible to opt for one that’s index–linked, either to inflation or a set percentage to protect your money from inflation.  Ask one of our financial advisors how!

UK shortfall in pensions is the worst in world

New research shows that British people are the worst in the world at saving up enough money for their retirement. The “Future of Retirement” study carried out by HSBC as part of their on-going global pension research showed that while the average UK retirement period is currently expected to last 19 years, the pension pot actually put away by the average Brit will only last for around seven, just 37% of their retirement.  The 12 year shortfall puts the UK as one of the least prepared countries in the world in regards to pension planning.

How do these figures compare to the rest of the world? The global average across the 15 countries and more than 15,000 people surveyed showed the concerning statistic that savings will run out for pensioners just after the halfway point (56%).  In second worst position after the UK was Egypt (55% shortfall), with the French coming in third, facing the shortfall of 53%.

What is the significance of the study?  The concept of retirement and the necessary preparation are evolving continuously however now we know just how much people are not prepared as well as how much savers’ expectations do not match their pension reality.  In addition, because the majority of people in developed countries can now expect to live well into their 80s and beyond, many of the pensioners will require extra long-term care provided through the combination of state and other private/family means.

According to the study’s author Mark Twigg: “We are now witnessing an acknowledgement among those in their 30s and 40s that working in retirement is, and may have to be, part of their formal retirement plans.  He adds: “With employment now seen as part of a flexible retirement plan, it is clear that the labour market will need to adapt and health and long-term care policies need to be developed aimed at promoting more active and healthy life styles among older workers.”

The report has shown another concerning pattern that nearly half of those surveyed had never saved for retirement.  This figure peaked in better well off countries such as France (65%), in comparison to 54% in the UK, 56% in Australia and 50% in Taiwan.  This lack of preparation comes despite the majority of people stating that their biggest fear about retirement was living in financial hardship.

In another stark break with reality, many workers expect to retire at 65 despite not having saved enough.  57% of those not yet fully retired in Britain would still pay for a holiday over saving for their retirement.  Another 14% of pensioners-to-be admitted they would rather dip into their pension pot to pay for their children’s education or a home rather then continuing to add up to their savings.

The situation is quite dire, people need to wake up and face the inevitable.  Too many workers will leave their jobs to finally retire only to find that they will have to significantly compromise their lifestyle habits because they did not accumulate enough savings.  This also means they will not be able to cover additional living expenses including important funding for long-term care in old age.

How does this relate to expats living abroad?   According to the research by Lloyds TSB, over 50% of expats who are currently working acknowledged that they will have to significantly reduce their expenses when they finally retire.  Only 30% of expats stated that they have built up enough of a pension pot to maintain their current lifestyle.

In fact, it is those on lower incomes that are most concerned about their savings not being sufficient to cover their current lifestyle.   The weakening of the pound has also not helped the matters, with many expats losing significant value off their pension pots.  In addition, many of them (500,000 according to the International Consortium of British Pensioners) have had their pensions frozen at the rate they were first drawn without accounting for inflation eroding their savings over time.

Fortunately, it is not all doom and gloom, expats approaching retirement age that have lived outside of the UK for over 5 years can move their retirement savings abroad via a QROPS or QNUPS. These pension vehicles have been created specifically for expats and allow them to get better rates of return supporting a good standard of living well into retirement.

To sum up, as daunting as the current pension challenges may seem, the best way forward still comes back to the basics: start planning earlier for your retirement, in order not to leave your financial bases uncovered!  If you have any questions or need assistance with any aspect of your pension planning or an already existing retirement vehicle, don’t hesitate to ask one of our experts.


Slovakia disappears off the HMRC QROPS List

Slovakia disappears off the HMRC QROPS List

Slovakia has now been removed from the HM Revenue and Customs list of QROP offshore schemes available for expats.  In the list previously, Slovakia, a relatively small and less popular destination for pension savers, had four retirement plans for both British expats as well as international workers who had UK pension rights.  In all honesty, it is not likely that these Slovakian plans had many members. The majority of the pensions most likely would have been taken up by Slovakians themselves who at some point worked in the UK and then chose to return back home.

The four delisted pension schemes have all been administered by a subsidiary of Tatra Bank, based in Bratislava and a part of Austria’s Raiffeisen Zentralbank group.  The spokesperson of the bank was not aware of reasons for the delisting of the QROPS.  HMRC also declined to comment why Slovakia no longer appeared on the latest QROPS list.  We can suspect that the continuous checks that HMRC undertakes on pension schemes around the world has brought up to their attention something that was not up to their expectations or requirements.

How often does HMRC update the QROPS register?  The list gets published every two weeks and is closely followed by the QROPS industry professionals for any changes and amendments.  Slovakia is the third jurisdiction to delist so far.  Singapore has come off previously, more recently, Cyprus got delisted in 2012 – both of these nations lost their status and have not been reinstated up to date.

In other parts of the world, this month, 2,895 QROP schemes in 46 countries have been listed which overall represents an increase of some 35 schemes across 47 countries.  The biggest increase of pension plans was seen in Australia – with an increase of 28 pensions to a grand total of 1,072.  Ireland also registered an increase of four plans, to 686; the Isle of Man added three QROPS to 212; at the same time Malta (11) and Gibraltar (14) all saw one new addition.  At the same time, one QROP scheme was closed in the USA.

What is the criteria for the QROPS list, how to understand it?  To clarify, the QROPS published list is not an HMRC register of ‘approved’ pensions, it is a list of schemes that are self-certified by their respective administrators who reaffirm they meet all the required QROPS rules.  It is also important to keep in mind that not all schemes appear on the list as some stay anonymous.

How is this relevant to you?  Pensioners cannot transfer a UK retirement fund to a QROPS scheme that is not listed. If the scheme is not listed, you can check with HMRC if the QROPS is listed on the private register.  As the first step, you can find a list of current scheme providers on the HMRC website.  Following this, for further advice, feel free to get in touch with us for any question related to your pension planning.


The FSA launches a probe into current pension rates

The FSA launches a probe amid concerns UK pensioners are getting a poor deal for their pension savings. 

The FSA investigation seeks to evaluate current pension rates offered to retirees when they sign up to an annuity, which provides them with a set income from their pension fund.

What constitutes an annuity?  In simple terms, it is the income you get from your pension once you retire.  The amount of income will depend on the total value of the pension you have saved up throughout your working life.   The more you have saved, the more money will be paid out on a monthly basis once you retire.

What many pensioners don’t consider is that they might be losing out by not shopping around for an annuity, a market that is worth today £11bn.  As per the open market option, retirees can take their pension pot and shop around amongst other providers for the most competitive annuity deal.

Is it worth it?  Absolutely!  This will be surprising to many pensioners who quickly assume that the difference may be insignificant on the basis that the underlying product is the same.  However, statistics show that there can be a variance of up to 20 per cent in the rates offered by different providers between the best and worst deals available on the market today.  This means that some retirees could be missing out on a substantial potential boost to their incomes.  In fact, an annuity purchase is one of the most important one-off financial decisions that you can make and the one that will have long-term consequences if you get it wrong.

The open market option was introduced back in 1988 however historically the take up has been low.  Only about 40 per cent of pensioners actively shop around before taking an annuity, with the majority directly accepting the rate offered by their current pension provider.   The FSA is looking to change this trend by compelling pension providers to disclose to customers that they have the right to compare different options available to them.

In reality, the insurers have been obliged to tell pension savers of their right to shop around since 2002, but the current probe will determine whether these firms are doing all they can to make this transparent and clear to their customers.  The regulator will be examining both the pricing of the annuities as well as the marketing and advertising involved in promoting these rates.  Furthermore, it will then check the individual providers to see whether their existing practices in fact help to encourage a person to shop around or actually make it more difficult for them to seek a more competitive option.

While this probe could have positive implications for those buying annuities in the years to come, it won’t provide much consolation for those unlucky ones who are seeking to purchase a retirement income now.  Adding salt to the wound, the cost to buy a retirement income has spiked in recent years due to measures implemented by the Bank of England in order to ease the financial crisis.  Maintaining the UK bank rate low at 0.5 per cent for almost four years and injecting some £375bn of new money into the economy via quantitative easing, had the effect of depressing the yield on gilts.  Because annuities are linked to the yield on 15-year gilts, it means pensioners get much less for their saved money.

You still get what you pay for!  About 40 per cent of retirees who do shop around, manage to get improved annuities after receiving financial advise.   Considering other options for an annuity can lift your income by a considerable margin, while for those pensioners who have particular medical conditions or lifestyle choices that may decrease their life expectancy below the average statistics, can increase potential retirement income even further by them qualifying for an enhanced annuity.

The market has indeed seen much innovation and increased choice for pensioners over the last few years, which means that many more potential options are available on the market to those who take time to look.  There are various options to consider such as lifetime annuities, those linked to investments, fixed term annuities, fixed and capped drawdown, phased retirement and many others.

We can only emphasise the importance of financial advice to ensure that your retirement planning is on the best track possible.  Think about it like buying a car insurance, you don’t take the first quote!

If you would like to receive more information about various pension-planning options available to you, please do not hesitate to get in touch.  We will be happy to be of assistance!